Retirement's Golden Rule
The “Golden Rule” of retirement is referred to as the 4% Rule. Researched and developed by Bill Bengen in 1994 it has come under fire lately due to today’s different economic conditions. When the 4% Rule was created returns were over 10% for 50/50 allocations of stocks, times have most certainly change.
The 4% Rule is the idea or rule of thumb that for every year of your retirement you withdraw 4% of your funds plus inflation. An example of the 4% Rule would look something like this:
- Say you retire with $800,000 in your portfolio. In your first year of your retirement you would withdraw $32,000 ($800,000 x 0.04 = $32,000).
- In your second year of retirement you would withdraw the same amount, but adjust for inflation. Assuming 3% inflation, you would withdraw $32,960 ($32,000 x 1.03 = $32,960).
The 4% Rule is good jumping off point for how much you should save for retirement. However, the 4% Rule does not take into account life factors like personal goals, health insurance, variable rates of return and your financial legacy. Also, the 4% Rule may vary for men and women since women tend to outlive men. This may mean women might want to take out 3.8% rather than 4%.
Withdraw rates tend to vary from person to person, a 3% withdraw rate may work for you while another retiree may be able to live on a 5% rule. Determining your own withdraw rate does take some serious calculations and the Credit Union’s Financial Advisors are always there to help you. Also, take advantage of the Credit Union’s various retirement calculators.